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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall
1-11-1
Organizational Theory,Design, and Change
Sixth Edition
Gareth R. Jones
Chapter 1
Organizations andOrganizational
Effectiveness
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 22
What is an Organization?
Organization: a tool used by people tocoordinate their actions to obtain somethingthey desire or value
Organizations provide goods and services
Organizations employ people
Organizations bring together people and
resources to produce products and services Basically, organizations exist to create value
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 333
How Does an OrganizationCreate Value?Value creation takes place at three stages:
input, conversion, and output
Each stage is affected by the environment in
which the organization operates Environment the set of forces and
conditions that operate beyond anorganizations boundaries but affect its
ability to acquire and use resources tocreate value
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 444
Figure 1.1: How an OrganizationCreates Value
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 555
Why Do Organizations Exist?
People working together to produce goods andservices create more value than peopleworking alone
5 major reasons why organizations exist: To increase specialization and the division of labor
Division of labor allows specialization Specialization allows individuals to become experts at their job
To use large-scale technology Economies of scale: cost savings that result when goods and
services are produced in large volume Economies of scope: cost savings that result when an
organization is able to use underutilized resources moreeffectively because they can be shared across several differentproducts or tasks
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 666
Why Do Organizations Exist?(cont.)
To manage the external environment External environment consists of the political, social,
economic, and technological factors that affectorganizations
Organizations regularly exchange products and services forneeded resources
Organizations need to manage their external environment
To exert power and control Organizations structure their members to efficiently
produce products and services
To economize on transaction costs Transaction costs: the costs associated with negotiating,
monitoring, and governing exchanges between people whomust cooperate
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 777
Figure 1.3: WhyOrganizations Exist
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 888
Organizational Theory, Design, andChange: Some Definitions
Organizational theory: the study of howorganizations function and how they affect and areaffected by the environment in which they operate
Organizational structure: the formal system of taskand authority relationships that control how people tocoordinate their actions and use resources to achieveorganizational goals
Organizational culture: is the set of key values,beliefs, and attitudes shared by organizationalmembers and helps shape the behavior within theorganization
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Some Definitions (cont.)
Organizational design: the process by whichmanagers select and manage aspects of structure andculture so that an organization can control the
activities necessary to achieve its goals Organizational change: the process by which
organizations move from their present state to somedesired future state to increase their effectiveness
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 101010
Figure 1.4: The Relationship AmongOrganizational Theory, Structure, Culture,Design, and Change
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 111111
Importance of OrganizationalDesign and ChangeEffective design is required for high
organizational performance4 Major Reasons why Organizational Design and
Change are Important
Dealing with contingencies Contingencies are events that might occur and must be
planned for most come from environment Organizations must be designed to be able to effectively
respond to environmental changes
Managing diversity Differences in the race, gender, and national origin of
organizational members have important implications fororganizational culture and effectiveness
Learning how to effectively utilize a diverse workforce canresult in better decision making and more effectiveworkforce
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1212
Importance of OrganizationalDesign and Change (cont.)
Gaining competitive advantage The ability to outperform other companies because of the
capacity to create more value from resources
Core competences: skills and abilities in value creation
embedded in the organizations people or structures Strategy: pattern of decisions and actions involving core
competences that produces a competitive advantage tooutperform competitors
Promoting efficiency, speed, and innovation
The better organizations function, the more value theycreate
The correct organizational design can lead to fasterinnovation and quickly get new products to market
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Consequences of PoorOrganizational Design
Decline of the organization
Lower performance
Talented employees leave to takepositions in other organizations
Resources become harder to acquire
Resulting crisis may result inorganizational failure
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1-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 141414
Why is OrganizationalEffectiveness Important?What is the point is you are not going
to perform well?
Maximizing value creation =
organizational effectivenessThere are multiple ways to create
value and perform well
3 primary ways discussed in chapter: Control: external resource approach
Innovation: internal system approach
Efficiency: technical approach
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Table 1.1: Approaches toMeasuring Effectiveness
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Measuring Effectiveness:Organizational GoalsManagers also measure effectiveness by
creating and measuring performancegoals
Official goals: guiding principles that the
organization formally states in its annualreport and in other public documentsMission: a mission statement explains why
the organization exists and what it should bedoing
Operative goals: specific long- and short-term goals that guide managers andemployees as they perform the work of theorganization
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Summary
Organizations are a tool people use toachieve their goals
Organizational theory is the study ofhow organizations function and howthey affect and are affected by theirenvironment
Organizational effectiveness must bemonitored by managers
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